Wall Street Breakfast: Must-Know News

Today's Markets

• Thursday in Asia: Nikkei: +1.85%, Hang Seng: -0.84%, Shanghai: -0.78%.

  Europe: FTSE: -1.11%, DAX: -1.64%, CAC: -1.30%.

  U.S. futures: DJIA: -0.33%, S&P 500: -0.33%, Nasdaq: -0.48%.

Must-Know News for Thursday

• Fed cuts again. In an apparent signal that it is now more concerned about the economic slowdown than about inflation, the Federal Reserve lowered the benchmark fed funds rate another half-point to 3% (see: Economists Largely Positive Following Fed Rate Cut).
• S&P slashes subprime. Standard & Poor's cut or may reduce ratings of $534B of subprime-mortgage securities and CDOs. The downgrades may extend losses at international banks to $265B and may ripple through financial markets. The downgraded subprime securities represent 47% of all subprime mortgages bonds over the past 1.5 years.
• Ackman sounds alarm on Ambac, MBIA. Bond insurance industry critic Bill Ackman says Ambac (ABK) and MBIA (MBI) will lose more money than they're currently predicting on exposure to subprime residential mortgages and CDOs. Ackman says Ambac's losses will hit about $11.6B, as will MBIA's. ABK and MBI shares plunged 16.1% and 12.6% in afternoon trading. Separately, Oppenheimer says U.S. financial institutions could lose up to $70B in 2008 due to bond insurer writedowns.
• Merrill trims risky business. Merrill Lynch (MER) said it will cut back on packaging home loans and consumer debts into securities, but will continue packaging corporate loans and derivatives. The collapse of the subprime mortgage market, it said, has eroded any demand for the products.
• Shell posts "obscene" profit. Royal Dutch Shell (RDS.A) reported full-year earnings on Thursday of $27.6 billion (£14 billion), a record not just for the oil giant but for any European company. High oil prices compensated amply for weak refining margins and lower oil and gas production. The profit was labeled "obscene" by Tony Woodley, joint general secretary of British trade union Unite, and "absolutely scandalous" by the motorist organization Road Haulage Association.
• Sony beats estimates, cuts PS3 target. Sony (SNE) reported Q3 EPS of $1.67 vs. consensus estimates of $1.31. Q3 revenue of $25.08B was well ahead of Street consensus of $24.82B. Sony cut its 2007 forecast to 9.5M PlayStation 3 sales from 11M. Shares gained 3.6% in Tokyo.
• Amazon gives strong revenue guidance, but shares fall on income forecast. Amazon.com (AMZN) posted a doubling of Q4 earnings and a 42% revenue rise, but its 2008 operating income forecast was below expectations at $785-985 million. Shares fell 12% after hours.
• Starbucks posts slim profit rise; will shutter about 100 stores. Starbucks (SBUX) reported a fiscal Q1 profit increase of less than 2% to $208.1 million ($0.28/share) on revenue of $2.77 billion, in line with expectations. In addition to closing dozens of stores, the company will also stop serving warm breakfast sandwiches.
• Job cuts coming to J.C. Penney. J.C. Penney (JCP) will announce today plans to combine buying and marketing operations, resulting in about 200 layoffs. CEO Mike Ullman says he favors innovation and variety over price cuts.
• MBIA posts second straight quarterly loss. The bond insurer (MBI) reported a Q4 net loss of $2.3 billion (-$18.61/share) versus net income a year ago of $181 million ($1.32). Writedowns on the credit derivatives portfolio rose to $3.5 billion. MBIA also said it has closed a deal with Warburg Pincus to sell it $500 million worth of shares at $31 each. Shares fell 12.64%.
• Boeing beats, easing concerns over Dreamliner delays. Boeing (BA) reported a 4% rise in Q4 profit to $1.03 billion ($1.36/share), $0.04 ahead of analyst forecasts. Revenue was flat at $17.5 billion. Boeing also raised 2008 EPS guidance to $5.70-5.85 from $5.55-5.75. Shares rose 2.32%.
• U.S. government dumps coal project. The Department of Energy has pulled its financial support for the construction of FutureGen, a $1.8 billion, almost pollution-free coal-gasification plant, because of cost overruns.
• UPS warns of tough 2008. UPS (UPS) posted a $2.6B loss due to a one time charge, and told investors 2008 would be tougher than 2007, with Q1 looking to be the most difficult. Q4 EPS after charges was $1.13, in line with estimates. Revenue of $13.39B was better than the $13.11B expected. UPS sees Q1 EPS of $0.94-$0.98 vs. consensus of $0.98, and full-year EPS of $4.30-$4.50 vs. estimates of $4.45. Shares gained 1.55%.
• Lilly considering $1 billion settlement for Zyprexa. Eli Lilly (LLY) is in talks with federal prosecutors to settle a civil and criminal investigation into its marketing of Zyprexa that could cost the pharmaceutical over $1 billion in fines.
• Alliance Data sues Blackstone. Alliance Data Systems (ADS) is suing the private equity firm Blackstone Group (BX) to force it to complete its $6.4 billion acquisition of the credit card billing processing company. Alliance shares, which have plunged 50% in three months on fears the deal won't close, rose 3% after hours.
• BP says makes deep gas discovery in Nile Delta
• Cost cuts push Lenovo profit up 198%
• Isuzu pulls plug on its auto sales
• HSBC's Hang Seng Bank to buy 20% of Yantai City bank for 800 million yuan
• Two Japanese Banks Report Declines on Mortgage Hits
• State Subprime Probe Takes a New Tack

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Comments

[Lisa]

The UPS news is yet another negative data point on the economy. Surprised the market isn't picking this up. Or maybe a really glum economic outlook is already priced in.

[tom kern]

Yes the price is being priced in . Higher prices, starting with the price of crude. Sorry to say if history prooves correct.Will just have to roll with punches on this puppy.

[helplessobserver]

I somehow think investors and the markets do not comprehend how serious the troubles in the financial sectors are. Every time a bank takes a CDO on to its balance sheet is equivalent to making a big loan without even knowing the name of the borrower or even worse nothing about his financial circumstances. I frankly have never seen anything like this in my years of borrowing and investing. Loan officers I've encountered over the years were tough cookies. Nothing good can come from these going on.